Sunday, January 12, 2014

Welcome to 2014! At first glance the market has been kinda weak so far this year but in the context of the six month chart above, you can see we've just been consolidating the Santa Claus rally. The market leading small caps have a very bullish looking pattern, as if stocks are about to surge higher. As I've suggested previously, the most plausible way for this 5+ year bull market to end is with serious upwards capitulation. Everyone is talking about a crash (down), how about a crash up? Consider a scenario where stocks go up ~2%/day for a week straight and then surge 5-10% (or more) one single day. This is how I think this QE-fueled bull market will end, not with some little reversal on taper talk like traders are constantly talking about. Does reality justify such price action? Absolutely not. Does reality justify a 40% gain in small caps last year? No way. This is a bubble market and bubbles go far higher for far longer than anyone ever expects. Based on the charts I'm looking at, the uptrend is accelerating, not slowing down. The best gainers will probably be the dumbest, most overvalued stocks (think TWTR or SCTY) that all of the fast money traders are trying to short. So going forward, I'm gonna stay long/bullish on the broad market until we see some crazy upside on record volume. There are good short opportunities though, such as in retail (e.g., SHLD), but the market indexes are heading higher, clearly. Good luck this year!
Disclosure: I have no position in IWM.